Monday, June 30, 2008

How to Create "Modern" Agriculture

The “household responsibility system” (HRS) implemented in the early 1980s broke up big collective farms and leased out the land to farm families. Dividing up the land among so many families resulted in tiny farms of a couple acres each, but production took off when farmers operated their own farms and responded to economic incentives. HRS worked well for a couple of decades, but now it is becoming apparent that this kind of farm structure is not ready for the prime time of global agriculture. How do you guarantee that farmers are not using toxic pesticides, growth hormones, carcinogenic drugs, or selling dead pigs to the slaughterhouse when you’ve got so many tiny independent suppliers? How do you trace back to find the source of tainted vegetables that show up in the market? How do you guarantee large quantities of standardized potatoes to make French fries? How do you make sure everybody is vaccinating their chickens and keeping them in enclosed housing?

Chinese ag officials have decided that farming needs to be larger in scale and more vertically integrated. Trouble is, there is no land market to consolidate farms into bigger operations, most farmers can’t get loans to make big investments, and the government is afraid to let farmers sell off their land for fear that China will be “Latin Americanized” (big landlords controlling all the wealth) or “Indianized” (poor landless laborers wandering the country). WIth no assets to secure loans, most farmers are without access to capital markets. So Chinese officials are coming up with all kinds of demonstration projects to teach “modern agriculture” in the context of China’s rickety collective land ownership system.

A June 20 article announces HeilongjiangProvince will invest $17.4 million in 11 pilot “modern agriculture” demonstration areas consisting of 40,000 mu (6,600 acres) each of contiguous farmland. The whole farming process will be mechanized from planting to harvest. According to the article, “It will effectively promote the province’s program to promote large-scale farm management and labor transfer, and play a leading role in modeling the new socialist countryside construction.” The equipment includes four imported large modern machines, one tractor of over 395 hp and 3 of 195 hp, as well as 3 domestically-produced 125-hp tractors. They will be equipped with advanced agricultural equipment. The demonstration area will be unified for standardized farming, “liberating” rural labor force, and raising grain production 15-20%, as well as raising farmer incomes.

Another article from June 16 describes a greenhouse-building campaign in Ningcheng County of Inner Mongolia. This program illustrates how various private and public players—higher levels of government, financial institutions, companies, and farmers—are co-opted to support government programs. The township government has “organized” 34 million yuan in funds. Some funds were transferred from the county government, some came from loans issued by the rural credit cooperative, some from investments by merchants, and some from farmers. In March last year, the county ag bureau got 3 million yuan in investment from the Changfeng Vegetable LLC to build a high-tech agricultural demonstration zone using specialized production, industrialized breeding, area management, to spread advanced technology in the whole county. The town government spent money to bring water and electricity to the zone, and gave a subsidy of 40 yuan per meter for greenhouse construction--the subsidy for a full structure was 1200 yuan.

Every day there are dozens of news articles on Chinese web sites describing various "demonstration projects."

Since farmers are hamstrung by not owning their own land, the government has to step in and arrange all the investment. They line up a company to be the intermediary between farmers and the market and to make investments. I observe a pattern of companies that have nothing to do with agriculture making agricultural investments. I’m guessing that companies do this to show their commitment to the cause in order to get some other benefit. In 2007 I visited a vegetable company in Liaoning which was set up like an extension center. The owner’s card said he ran 5 other companies that were all in the textile business. On another occasion I attended a banquet in YunnanProvince hosted by a real estate company. They handed out a brochure showing all the big projects, one of which was a futuristic agricultural technology center where farmers would come to learn about all kinds of new techniques, varieties, and breeds. In 2007 China started experimenting with opening “village banks.” All of them are run by city banks or foreign banks.